Tax ‘nightmare’ for parents after child benefit reforms

George Osborne, the Chancellor, was last night accused of “family-bashing” as it emerged most parents affected by the child benefit changes will now be hit with tax demands, reports The Telegraph.

Under reforms coming into force today, around 1.1 million earning more than £50,000 a year are set to lose some or all of their child benefit payments, which are worth an average of £1,300 per family.

However, only 250,000 people had voluntarily opted out of the child benefit system by 5pm yesterday, with just seven hours to go before the deadline for registration.

This leaves around 850,000 parents who will continue to receive their child benefit as usual but have it clawed back later in tax through the burdensome self-assessment process.

HM Revenue and Customs received a last-minute rush of registrations, but many thousands of parents are still unaware of the changes. They could face fines running into hundreds of pounds if they fail to fill in their self-assessment forms.

Although some higher earners may already be in the self-assessment system, it is likely to force many more down this complex and expensive route for the first time. Around 80 per cent of those who fill in their returns online have to hire an accountant or tax adviser.

Last night, the Institute of Economic Affairs said the Coalition’s child benefit reforms are “the single most incompetent change to the benefits system since the Second World War”.

The right-leaning think-tank also accused the Chancellor of unfair “family-bashing” and “penalising marriage”.

Under the new system, any family where one earner takes home more than £60,000 a year will lose all of their benefit. Once the household’s highest earner takes home more than £50,000 a year, they begin to lose part of the benefit for every extra pound they earn.

This means a couple where just one partner earns more than £60,000 will lose the extra help, while a couple earning £50,000 each or a single parent earning the same amount would keep their payments.

“This is direct discrimination against couple families, especially single-earner couple families,” said Professor Philip Booth, editorial director of the IEA.

Chris Leslie MP, Labour’s shadow Treasury minister, said the policy is in “chaos” and will amount to a “very costly administrative nightmare” for many parents.

He also pointed out that thousands of families are likely to face a “pre-election tax bombshell” in 2015, as big bills for repayment of child benefit for 2013/2014 tax year will begin land on people’s doormats at this point.

Labour also claimed new mothers will have to fill in a form claiming child benefit and then fill in a different form asking not to receive it if they are higher earners.

Both David Cameron and Mr Osborne are under pressure over their move but insist it is necessary to help reduce Britain’s welfare bill.

In separate interviews, they acknowledged that not everyone earning more than £60,000 a year is “rich”, but said high earners have to make a fair contribution to paying down the country’s debts.

HM Revenue and Customs argues the new system is the simplest way of getting higher earners to give up their child benefit.

However, Grant Shapps, the chairman of the Conservative Party, yesterday acknowledged it is “frustrating” for people who are losing their benefits to fill in more forms.

The senior Tory said he “feels the pain” of those going through the process after he did so himself but he also called on people to remember they are “in this together”.